It May Just Be Easier to Switch to ERISA 403(b)

August 19, 2014 ( - Given regulatory guidelines that can be difficult to follow, many non-profit 403(b) plan sponsors are finding it harder to maintain a fully compliant non-Employee Retirement Income Security Act (ERISA) plan, one advisory firm says.

Strategic Benefit Services (SBS) notes that historically, non-ERISA plans were subject to relatively little regulation and were a popular choice for many non-profit organizations. In general, most plan sponsors chose to maintain a plan outside of ERISA to avoid Form 5500 reporting and mandatory audits if the plan had more than 100 participants.

However, Internal Revenue Service (IRS) regulations passed in 2007 require more plan oversight. Inadvertent or unintentional involvement by the employer can make the plan subject to ERISA, meaning non-profits run the risk of being penalized by the Department of Labor (DOL) for breach of ERISA requirements, SBS contends.

Limited plan sponsor involvement can also hinder efforts to encourage greater employee plan participation, SBS says. “The more plan sponsors are involved, the more they can ensure their plans have the features that employees find attractive and will allow them the best opportunity to enhance their financial future.” 

According to SBS, changing from a non-ERISA plan to an ERISA plan is not overly complicated. Organizations should first:

  • commit to incorporating a 403(b) plan into the organization’s retirement plan objective;
  • determine how the new plan correlates with the existing retirement program;
  • develop a strategy to create a single 403(b) plan;
  • develop a request for proposals to find the most suitable vendor to support the plan’s overall objective; and
  • create a coordinated communication plan to bring the 403(b) into the overall organizational retirement objective.

SBS suggests plan sponsors should also consider creating a “combined” retirement benefit statement incorporating their former retirement plans and the new ERISA-governed 403(b) plan. This will offer participants complete information about the prior plan, as well as the one taking its place.

Compliance issues that should be addressed when moving from a non-ERISA plan to an ERISA plan include:

  • adopt a new plan document (a plan document is already required under current regulations, even for a non-ERISA plan);
  • understand and plan for an annual audit if the organization has more than 100 employees—this can be coordinated with audits for the current retirement plan;
  • file an annual return (Form 5500)—this can also be coordinated with existing filings; and
  • create a process for fiduciary management and oversight.

SBS says an adviser that specializes in this area can be of tremendous help in assisting non-profits in navigating the changeover smoothly and successfully.

More information about SBS is here.